Evaluate Two Macroeconomic Objectives the Government in Your Home Country Aims to Achieve and How Effective Is the Government in Achieving Them?

1286 WordsAug 25, 20116 Pages
In today’s interdependent markets, the economy of one country is inextricably linked with that of another. For instance, the collapse of the banking sector in Iceland had a substantial impact on the British economy and the currency volatilities of the Euro have had implications far beyond the Euro zone. In this essay, I will examine how British macroeconomic policies have attempted to reduce the damage of recent economic turbulence in the US on the UK economy. Macroeconomics, policies that aim to improve economic growth, maximise national income and raise the standard of living for citizens, have four main methods: full employment, inflation, balance of payments, equilibrium of supply and demand. In this essay I will look at:…show more content…
Inflation is a bad thing because it means that the purchasing power of the consumer is weakened. Monetary policy can be used to curb inflation by using tools such as interest rates and the input and output of money. A principal objective of any central bank is to maintain the value of the currency in terms of what it will purchase. Rising prices, inflation (increase in prices, fall in the purchasing value of money), reduces the value of money. Monetary policy is directed to achieving this objective and providing a framework for non-inflationary economic growth. As in most other developed countries, monetary policy usually operates in the UK through influencing the price at which money is lent – the interest rate. However, in March 2009 the Bank's Monetary Policy Committee announced that in addition to setting Base Rate, it would start to inject money directly into the economy by purchasing assets often known as quantitative easing. This means that the instrument of monetary policy shifts towards the quantity of money provided rather than the price at which the Bank lends or borrows money. Low inflation is not an end in itself. It is however an important factor in helping to encourage long-term stability in the economy. Price stability is a requirement for achieving a wider economic goal of sustainable growth and employment. High inflation can be damaging to the performance of the economy. Low inflation can help to promote

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